Federal banking regulators and mortgage banking professionals will have their say on "exotic" mortgages on Sept. 20 when two Senate Banking subcommittees host a joint hearing on the hot new products.The subcommittees on housing and on economic policy have invited five federal banking regulators to testify, as well as representatives from lending, mortgage insurance, and consumers groups. The hearing comes just as banking regulators are trying to finalize guidance that would strengthen underwriting and improve consumer disclosures on interest-only loans and payment-option adjustable-rate mortgages. Federal regulators are close to agreeing on IO and option ARM guidance, but are hung up on how to treat negative amortization and whether it should be added to the principal amount of an option ARM for purposes of qualifying a borrower. Mortgage lenders originated $83.3 billion in option ARMs in the second quarter, which accounted for almost one in 10 of residential loans funded, according to survey figures compiled by National Mortgage News and the Alternative Products Quarterly Data Report.

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